Peoples Gas wants surcharge

Peoples Gas has dropped its request for automatic rate hikes on home heating bills to pay to replace aging pipes below city streets.

The natural gas utility is now floating new legislation in Springfield that would add a surcharge onto its utility bills to pay its $2.5 billion pipe replacement program.

A unit of Chicago-based Integrys Energy Group, Peoples Gas is part way through an upgrade that would replace 2,000 miles of pipe and boost pipe pressure nearly a hundredfold, virtually guaranteeing water won't seep into pipes, freeze and cause cracking and leaks. The plan also would eliminate the need for the utility to enter homes, because meters would be outside.

According to the legislation, consumers could see home heating bills rise 4 percent per year on average over the next 10 years if the legislation passes.

The move is the utility’s latest attempt to work around its funding woes. In 2011, an appellate court judge tossed out a similar surcharge Peoples Gas added to heating bills for the pipe replacement program. The Illinois Commerce Commission had approved the charge but consumer groups took the issue to court and won.

In 2011, Peoples Gas tried to latch on to ComEd-backed legislation but was rebuffed by the legislature. This year, it floated legislation that followed the same roadmap as ComEd, which is now operating under a formula-based rate that gives it faster and more frequent returns as it invests in a multi-billion-dollar upgrade to the electrical grid. That bill stalled in Springfield.

Peoples Gas has said that the funding problem has placed the program in a bind. With the typical 11-month-long courtlike rate-setting process, Peoples Gas said the project could stretch to 40 years from 20 years and cost rate payers an additional $244 million.

The latest Peoples Gas bill, which requests a surcharge to pay for the program, is an amendment to Senate Bill 2266 and opens the door for natural gas utilities Nicor and Ameren Illinois to tack on similar surcharges for infrastructure upgrades.

Consumer groups said Monday that a surcharge would be an improvement over the utility’s previous attempts but were concerned that the legislation could open a door for unnecessary utility projects at the expense of consumers.

“This issue has always been around the need and desire of Peoples to update their system,” said Scott Musser, associate state director for AARP, which said it doesn’t think other utilities should be allowed to use the rider mechanism.

Citizens Utility Board Executive Director David Kolata said he was still reviewing the bill but offered a few initial observations.

“The new rider established by the bills appears to be narrowly tailored, which is a good thing. We do have some concerns, however, that the (return on equity) for rider expenditures is too high, give that riders by their very nature reduce company risk,” he said.

In striking a deal in 2011, ComEd tied its bottom line to performance improvements that included a mandate that it reduce the frequency and duration of outages. Electricity bill hikes were also capped at 2.5 percent per year as part of the bill.

The Peoples Gas legislation similarly attempts to throw in sweeteners for consumers. The bill requires the utility to create a set of performance criteria it must meet and to report annually to regulators about whether it is meeting that criteria and caps rate increases due to the program in any given year at 5.5 percent.

The legislation does not, however, tie performance to the utility’s bottom line, as was the case with the ComEd legislation that passed in 2011, nor does it include specific criteria that must be met.

Peoples Gas said Monday that its request aren’t extraordinary given that nearly 30 states allow similar means for utilities to recover costs for infrastructure improvements.

The company said in statement that if the legislation passes “the program will also reduce costs through less frequent base rate cases and lower operational expenses in the future.”